Monday, 26 December 2011

Investing 101: Reading Stock Quotes II

Let's talk about what to do with all that money that you've worked so hard on saving up. In this section titled Investing 101, I'll go over different terms and ideas that every investor should know.* Hopefully the information provided will help give you a general idea of how things work and build a foundation for you to go and further educate yourself. Welcome to class. Today's topic? Reading stock quotes (again).

Last time we discussed what we would typically see when we look up a quote on our favourite stock. Let's finish that up today.

Again,  I'll be using Husky Energy as our example**.

Bid: This is the current price the investors are willing to pay for one share.

Bid Size: The bid size is the number of people bidding on the stock at the current time.

Ask: This is the current price that investors are willing to sell one share for (the difference between the bid and ask is called the spread).

Ask Size: Just like the bid size, the ask size indicates the number of investors willing to sell the current time (in conjunction with the bid size, one can determine if the stock price will move up or down in the short term; more buyers than sellers mean the price will probably go down from the current value and vice versa if there are more sellers than buyers).

52 Week High: The 52 week high tells us the highest price the stock has reached in the past 12 months.

52 Week Low: This is the lowest price the stock has reached in the past 12 months (the 52 week high and the 52 week low can be used to help gauge whether the current price is expensive or not; personally, I don't even bother if it's too close to the 52 week high).

E.P.S.: This stands for Earnings Per Share. It indicates how much money is being earned for every share that the company has. This metric is used to help determine how profitable the company is.

P/E Ratio: The Price Per Earning Ratio is the price paid for every dollar that the company earns. The lower the ratio, the cheaper the stock since it costs less money to buy the same amount of earnings. However, further research should be done because P/E Ratios can be easily manipulated and may not give you the whole picture.

Ex-Div Date: If you open a position on of after the Ex-Dividend Date, you are not eligible to receive the next dividends distribution. You can read more about dividends here.

Dividends: This is the annual amount that the company is distributing. There is no guarantee though and dividends may be cut if the company encounters rough times or it may increase if the company is prosperous (which is the plan).

Yield: The yield is the dividends / the current market value * 100. This indicates how much money you're getting back from your investment. Essentially the yield tells us how much value we can get out of the money invested. Higher yields mean more bang for your buck, but high yields can be a sign that the company is in trouble and a dividend cut could be in the near future because a high yield may not be a result of a high dividend but the market value tanking. Do research to see why the market value is dropping before picking up the stock.

Shares: This tells us the number of shares that the company has outstanding. Basically how many slices of the pie there are. The smaller the share size, the larger the slice of the company one share is worth.

Market Cap: If the number of shares outstanding is multiplied by the market value of one share, we get the value of the whole company. This is called the Market Capitalization. The Market Cap gives us an idea of how big the company is. Large cap stocks are valued at a minimum of $1-2 billion while small caps are anything less than that. Larger cap stocks are generally more stable than the smaller ones.

Exchange: This tells us which stock exchange the stock trades on.

Hopefully this little primer will help clear up some of the numbers that pop up on the screen when you look up a stock quote.

-the Paperboy

*I am by no means an expert and have no background whatsoever on the subjects other than what I learn on my own, so do not take the articles in this series as advice. Please remember to do your own research before making any financial decisions.
** Long on Husky as of writing

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